Tag: Corporation Tax

Revised Legislation: Socimis to Pay Tax of 15% on Retained Profits

11 January 2019 – Expansión

The General State Budgets for 2019, which are going to be approved by the Council of Ministers today (Friday) and which are going to be presented to the Congress on Monday, will include a tax charge on the undistributed profits of Socimis, to which a tax rate of 15% will be applied, according to reports made by sources speaking to this newspaper. The measure was agreed between Podemos and the Tax Authorities although the Government did not include it in the Budget Plan that it sent to Brussels in October or in the draft bills that are already being processed. The General Secretary of Podemos, Pablo Iglesias, blames the Socimis for the “rental bubble”.

This measure follows other initiatives agreed with Podemos, which cause the greatest impact of the increase in taxes set out in the budgets to fall on companies: they include a tax of 5% on overseas dividends and the imposition of a minimum taxable base of 15% in terms of Corporation Tax, which will be added to the draft bills to create the Google tax and the Tobin tax.

Socimis (Listed Public Companies for Investing in the Real Estate Market) were created by Zapatero’s Government in 2009 to revitalise the real estate market. They enjoy a very beneficial tax regime. The rate of Corporation Tax applicable to them is zero, provided they fulfil a series of requirements: their minimum capital stock is €5 million, which may be invested in a single property; a minimum of 80% of the profits obtained from rental must be distributed in the form of dividends; and a minimum of 80% of the value of the assets in urban buildings must be leased for three years. For the rents received from other types of activities, the Socimis have to pay tax at a rate of 25%.

From now on, a tax rate of 15% will have to be paid on all of the profits not distributed by these types of entities.

“We need to discourage the promotion of these types of companies that promote the bubble model, undermine the public coffers and represent a grievance for competition. We consider that the special regime afforded to the Socimis, whose main feature involves a tax rate of 0% for Corporation Tax, needs to be reversed”, said Podemos in a recent document. It regards it as “necessary to reverse Government policy, based on forcing tax regulation to create a tax haven for companies that promote a new housing bubble”.

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

Top 5 Socimis’ Earnings Soared by 70% in 2017

1 March 2018 – Expansión

Spain’s large listed Socimis – Merlin, Colonial, Hispania, Lar España and Axiare – are continuing their rise. They closed last year with a combined profit of almost €2.4 billion, which represents an increase of almost 70% with respect to the previous year, after increasing their revenues from rental income by 20%, to €1.1 billion.

These companies, which, with the exception of Colonial, made their debuts on the stock market between March and July 2014, now own assets worth almost €26.4 billion, which represents an increase of 17% with respect to the previous year. The five Socimis also have a combined market valuation of €13.4 billion.

The stars of the year were, once again, the Socimis on the Ibex. Specifically, Merlin doubled its earnings in a record year, to exceed €1.1 billion, whilst Colonial earned €683 million, up by 149%.

The firm led by Ismael Clemente generated a recurring profit – proceeding from the core business – of €289 million, up by 31%, and increased its revenues by 34%, to €470 million. Merlin’s asset portfolio had a gross value of €11.3 billion.

Meanwhile, Colonial, which is going to merge with Axiare during the second half of this year following its successful takeover, recorded a 22% increase in recurring profits, to reach €83 million, boosted by rising rents, a better financial result and a lower corporation tax charge due to its conversion into a Socimi in May last year.

Unlike its rivals, Hispania saw a reduction in its profit of 27% to €228 million, after recognising provisions amounting to €95 million for the payment of incentives to its management firm Azora. Moreover, the company in which George Soros owns a stake registered a negative impact in its accounts amounting to €46 million due to the payment of incentives and the cancellation of guarantees following the purchase from Barceló of 24% of Bay for €172.4 million.

Hispania, which increased its revenues by 9.5% last year, had a portfolio of assets with a gross value of €2.5 billion at the end of the year, compared with €2.0 billion at the end of the previous year.

Meanwhile, the Socimi specialising in retail, Lar España, earned 48% more, at €136 million, thanks primarily to the performance of its shopping centres. The company recorded revenues from rental income of €77.6 million in 2017, up by 29%, and has announced divestments of non-strategic assets amounting to €470 million, including offices, residential properties and logistics assets, in processes that are already underway.

Meanwhile, Axiare’s net profit soared by 47% last year, to €218 million. The Socimi, controlled by Colonial since January, closed 2017 with turnover of €69.7 million, up by 36.6%, and assets worth €1.8 billion.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Domo Activos Embarks On New Growth Phase

3 November 2017 – Eje Prime

Domo Activos is embarking on a new phase of growth. The largest property developer Socimi, aimed at medium-sized investors, is going to launch a €15 million capital increase over the next few weeks. It plans to use the funds raised to buy new land in Spain, with the purpose of building new homes, according to José Luís Alba, Director of Domo Gestora’s Socimi.

According to the director, the company has already identified opportunities in Spain and is now waiting to beef up its financial strength so as to be able to actually purchase the new plots. “We will focus these acquisitions in Madrid, Málaga and Valencia in the first instance, but we are also looking for plots in Sevilla, Córdoba, Granada and Zaragoza”, said the executive.

Domo Activos Socimi will increase its share capital through an issue and placement into circulation of up to a maximum of 7.5 million shares, with a nominal value of €2 each “with an incomplete subscription forecast”. To approve this increase, Domo Activos has convened an Extraordinary General Shareholders’ Meeting, which will be held in Madrid on 30 November.

The business model of Domo Activos involves the acquisition of land for the construction of buildings, which are let out for the first three years and then sold “whereby benefitting from the tax benefits afforded to these types of companies”. “In this way, all of the capital gains generated, from the date the land is acquired to the date the properties are sold, are not taxable for corporation tax purposes”, explain sources at the group.

According to the company’s own estimates, the return on this project, once the divestments have been made, could reach 10% per annum. Investors receive the profits resulting from rental income in the form of dividends throughout the period that the buildings are leased and until they are sold.

Currently, the first project being promoted by Domo Activos is the development that it is constructing in Madrid, in El Ensanche de Vallecas. This building will contain eighty homes for rent, according to sources at the group.

New leadership team

Moreover, the company has also been reshaping its management team in recent months. To carry out this new phase of growth, Domo Gestora has appointed José Luís Alba as Director of the Socimi, a role carried out until now by Roberto Boluda, who moved to Prygesa in July as the Managing Director of the property developer owned by the Pryconsa group.

Domo Gestora’s Socimi was created by a team that is closely related to the real estate business. When it was launched, the company appointed Enrique Guerra as its CEO. Guerra is an expert in real estate management and has specialised in housing cooperatives since 2002 (…).

Domo’s management team is completed by executives such as Juan Pedro Plaza, the Socimi’s Director of Investments (…); Feliciano Conde, who took over the presidency of Domo Activos in January 2016 (…); and Alberto Freire, Director of Developments at Domo, amongst others.

Original story: Eje Prime (by C. Pareja)

Translation: Carmel Drake

Anticipa Wants To Become Spain’s Largest Rental Home Manager

3 April 2017 – El Economista

Anticipa, the real estate subsidiary of the US fund Blackstone, wants to become one of the largest rental home managers in Spain. To achieve its objective, the company plans to consolidate its assets in different Socimis, which will be listed on the MAB, according to comments made to elEconomista by sources close to the fund.

Anticipa is the former real estate platform of Catalunya Caixa, which was acquired by Blackstone in 2014. That same year, the fund signed the purchase of its first major mortgage portfolio from the same entity. Known at the time as Project Hércules, the operation involved the transfer of 40,000 problem loans, for which Blackstone paid €3,615 million.

Since the acquisition was closed definitively, in April 2015, Anticipa has been in charge of managing these assets along with those from another six portfolios, which have a combined value of €7,000 million.

According to the same sources, Blackstone’s objective is to continue acquiring portfolios to reach 17,000 rental homes by the end of this year, which would make its subsidiary one of the largest residential managers in the country.

Anticipa already has 12,000 homes up for rent or in the process of being put up for rent in the short term and has placed a package of 5,000 units on the market through the Socimi Albirana, which debuted on the stock market last week. Those assets, located mainly Barcelona and Madrid, were inherited from Project Hércules.

In order to continue implementing its strategy, the fund is already working on the launch of a new Socimi, given that it considers that to be the most efficient way of structuring its portfolio. Socimis have a special tax regime in Spain and pay Corporation Tax at zero percent. In addition to Albirana, Blackstone registered two other Socimis last year, under the names Pegarena and Tourmalet.

Led by Eduardo Mendiluce Fradera, Anticipa has been in charge of managing the enormous portfolio of loans to individual borrowers, on a case by case basis, which it inherited from Catalunya Caixa.

To handle this task, the firm, which already had extensive experience in the real estate sector, expanded its workforce to incorporate more financial profiles, growing the team to include 330 professionals.

The 40,000 mortgages that Blackstone purchased in 2014 include loans with varying degrees of delinquency, from up to date to NPLs. Of the total, 3% have involved social housing cases, but none have ended in eviction.

Since Anticipa began managing this portfolio two years ago, it has managed to reach 10,000 agreements, of which the majority are “daciones en pago” and the remainder are debt restructurings.

Having freed up the asset, the firm’s objective is to allocate around 70-75% of its homes to rent, and to sell the rest – generally, it will sell those homes that are located in places where there is no demand for rental properties. (…).

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

MAB’s 31 Socimis Must Prove Their S/H Liquidity By Friday

8 March 2017 – Invertia

The deadline that the Alternative Investment Market set for Socimis to demonstrate greater liquidity in terms of their share capital, is looming. By Friday, at least €2 million of the respective share capital of those entities must be held by minority shareholders in each case. Any Socimi that fails to comply with this requirement will be expelled from the alternative stock market.

Last year, the Alternative Investment Market (MAB) produced a circular, which, amongst other things, sought to increase the liquidity of the shares of its Listed Real Estate Investment Companies (Socimis). The Socimis represent a very important segment in this small MAB market, but the negotiation of their shares stands out for all the wrong reasons – due to its absence. Having said that, it should be noted that the large Socimis, which are listed on the continuous stock market – including the one company that trades on the exclusive Ibex, namely Merlin – do have more than acceptable movements in their shares.

In this way, a significant difference is being established between the 31 Socimis whose shares are traded on the MAB and the four whose stocks are listed on the continuous market. In addition to Merlin, the group of Socimis whose shares are actively traded comprises: Axiare, Lar and Hispania.

Friday represents the deadline for all of the Socimis to comply with the minimum capital distribution requirements, whose aim is to generate more liquidity (…).

Article 3.2 of the MAB’s circular states that: “In the case of Socimis, for the shares of such a company to be traded on the MAB, a minimum number of those shares must be owned by shareholders that hold less than 5% of the company’s share capital, and that minimum number must comply with either one of the following magnitudes:

– An estimated market value of €2 million.

– 25% of the shares issued by the company.

The calculation above will include shares placed at the disposal of the liquidity provider to perform this function. The effective diffusion of those shares should happen within a maximum period of one year following their incorporation onto the MAB”.

The MAB established a period of one year for the Socimis to adapt to this shareholder composition requirement. In other words, Socimis that were operational on 9 March 2016 and before, must comply now (by Friday) and those that have joined since that date will have one year to comply following their incorporation onto the market.

The Socimi Paradox

Socimis first emerged in 2013, boosted by a very favourable tax treatment of 0% in terms of Corporation Tax. The reason, according to the experts, was to revive the real estate market that attracted so many overseas investors to Spain in search of bargains that the real estate crisis had left behind.

In this way, the Government was trying to strengthen the real estate investments of large families with a very advantageous tax vehicle. (…).

Nevertheless, most of the Socimis are owned by wealthy families and companies owned by very few people, which are achieving remarkable savings in terms of Corporation Tax. This means that in many cases, it does not make sense to sell shares in these Socimis given that their founding owners do not want to offload those shares. Nevertheless, the entities are required to be publicly listed with the aim of ensuring that company information is generally available. The act of listing forces these companies to be more transparent in terms of information.

However, Friday’s deadline for the MAB’s circular could force some of the Socimis out on the street and therefore, losing their tax benefits. (…).

Original story: Invertia

Translation: Carmel Drake

Political Uncertainty Deters Real Estate Investment

31 May 2016 – Expansión

The political uncertainty in Spain is hanging over the real estate sector, which, despite continuing to be active, is not shining with the same splendour that it did in 2015. Specifically, real estate investment during the first quarter of the year exceeded €2,100 million, which represents a 25% decrease with respect to 2015, according to data from CBRE.

The segment most affected by this slowdown was offices, where investment declined by 70% during the first three months of the year, to €180 million. Meanwhile, investment in retail amounted to around €770 million, almost 45% less. By contrast, investment in the logistics sector amounted to €200 million, compared with €80 million in the same period a year earlier. In other sectors – residential and hotels – investment amounted to more than €1,000 million, compared with €885 million during Q1 2015.

Pedro Lacambra, manager at Ibercaja Gestión, explained that the Spanish real estate market is showing signs of a slowdown, which is accentuated in certain business segments, such as offices. The expert said that Socimis account for 40% of all investment in offices, and that they are having to raise new funds to grow and invest in assets. Moreover, he said that the office business requires greater demand for space from existing companies, as well as the appearance of new companies and multinationals arriving in Spain. For Lacambra, the current panorama of political uncertainty does not encourage any of these scenarios.

Meanwhile, Daniel Pingarrón, market strategist at IG, considers that the political uncertainty is weighing down more on the Socimis and real estate companies than on players in other sectors. “ The stock exchanges and financial markets are more globalised and depend a lot less on politics and local factors. By contrast, the real estate sector is more sensitive, as we have seen with Operación Chamartín and Operación Campamento”.

In this sense, the analyst thinks that some investors are waiting for the uncertainty surrounding the formation of the future Government to be resolved before entering Spain.

Taxation of the Socimis

The analyst at Selfbank, Victoria Torres, explains that the political uncertainty that currently exists in Spain is one of the factors that is significantly affecting the real estate sector, which is very sensitive to the legislation in force. “There is a fear that a change in Government could increase the tax charges for Socimis. For that reason, we are not seeing any massive sales, but rather defensive moves to reduce positions until after the General Election”, explains Torres.

Torres thinks that these companies are helping to boost a depressed sector thanks to the tax benefits that they enjoy, amongst other reasons. Socimis pay Corporation Tax at a special rate of 0%, receive a 95% rebate on Stamp Duty (AJD) and Property Transfer Tax (ITP) on capital gains, and do not retain the dividends distributed to their shareholders, which include both individuals and corporations.

For Torres, the new concerns over the sector come at a key moment for the firms, especially Hispania, which is preparing a €231 million capital increase. (…).

Gonzalo Sánchez, analyst at Gesconsult, shares the same view. For him a more or less similar Government would benefit these companies. “Behind the Socimis are overseas investors, who want to have their money where they can see it and to avoid the chance of any nasty surprises”, he added. (…).

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Socimis Fear Rise Of Left-Wing Coalition, Unidos Podemos

26 May 2016 – El Economista

Since 9 May 2016, when the political leaders of Podemos, Pablo Iglesias (pictured above, right), and Izquierda Unida, Alberto Garzón (pictured above, left), announced their intention to stand together in the upcoming General Election on 26 June, the possibilities of them beating the Socialist Party and, even, forming a Government, have increased considerably (the D’Hondt electoral law penalises minority groups).

The fact that Unidos Podemos has become a real option, according to the latest polls, is being felt on the stock exchange in sectors such as real estate. The Socimis have seen an average decrease in their share prices of 1.5% since 10 May, which represents a difference of 3.6 percentage points with respect to the Ibex 35, which has risen by 1.6% during the same period.

In its election manifesto, the purple party – which now has the support of IU – proposes reforming the tax regime for Socimis (as well as for the Sicavs). The real estate vehicles are currently exempt from paying Corporation Tax, provided they fulfil certain requirements, such as distributing 80% of their net profits as dividends.

“What it (the regime) does is raise the taxation (liability) up to the shareholders. They bear the taxation through their remuneration in the form of capital income (provided their share stakes exceed 5%), says Ana Hernández, an expert in Socimis.

Merlin Properties, the largest Socimi in the market, with a market capitalisation of €3,100 million (more than twice the size of the second largest firm, Hispania), is suffering more than most from the downward trend. Within the last month, short positions of the company’s shares have almost tripled, from representing 0.4% to 1.15% on 13 May, according to data prepared by the CNMV. Meanwhile, its share value had decreased by 20% since the last General Election was held on 20 December, more than double the 8% drop that the Ibex 35 has seen during the same period.

Concern amongst investors

“There is noise (in the market)”, acknowledged sources in the sector, although “maybe it is excessive”. (…).

“Spain is an attractive country for real estate investment” said Jesús Amador, analyst at Bankinter, who recognises, nevertheless, that the latest “initiatives” motivated by Town Halls close to Podemos “may influence” the investments made by the Public Administration, following “the cuts to investment for Operación Chamartín, the controversy with Plaza de España and the problems in Barcelona”. (…).

The left-wing coalition proposes a minimum tax rate for Companies of 15%, which, in the absence of more data, would also become the future tax rate for the Socimis. “If they make the work more complicated”, said the President of one Spanish firm, “they will kill many of them off”.

Original story: El Economista (by Laura de la Quintana)

Translation: Carmel Drake

Podemos Positions Itself Against Socimis & The RE Recovery

26 April 2016 – Negocios.com

The political party led by Pablo Iglesias (pictured above) wants to put a stop to these investment companies, which are responsible for investing billions of euros each year.

Podemos has proposed an attack on the Socimis (listed real estate investment companies), whose appearance has helped the recovery of the real estate sector in recent times. Pablo Iglesias has put the tax structures of Socimis, private equity firms and entities holding foreign securities (ETVE) in the firing line; he says that he wants to “ensure productive investment and tax equity”. And it is true that the tax treatment of Socimis is different to the rules that apply to other companies, but the Socimis also have to comply with certain requirements, such as holding share capital of €5 million, and not €3,000 like an SL, and listing on the stock exchange, such as the MAB, IBEX 35 or Main Market.

– Tax rate of 0%. Socimis are taxed at a rate of 0% for Corporation Tax purposes.

– Special rules need to be taken into account for entities that have been taxed under a general regime that start paying tax under the Socimi regime: if ownership of a property is transferred prior to the application of the Socimi regime, then the rental income shall be understood to be generated on a linear basis (unless proven otherwise) during the holding period, and so the previous tax regime and the Socimi regime will be applied to the rental income on a proportional basis.

In addition, Podemos also wants to axe Sicavs, control the shareholders and the money in cash, limit the maximum percentages per shareholder and have them monitored by the Tax Authorities and not by the CNMV like now.

Encourage “informers” and allow tax inspectors to work under cover in order to combat tax fraud. The informer would be rewarded with some of the economic fine imposed on the offender, whilst a fund would be created for paying tax confidants.

This is part of the Comprehensive Plan to Combat Fraud that will be presented to the Economic Committee on Wednesday. According to the text, tax revenues would increase by between 1% and 1.5%.

Moreover, Podemos considers that it would be worthwhile to integrate all of the networks of the Tax Authorities and the regional and state Social Security departments for greater coordination.

Meanwhile, Podemos’s proposals also include lowering the criminal liability threshold for tax offences to €50,000, as well as increasing, in general, the “prescription period” to ten years, applying the penalties currently provided for when the defrauded amount exceeds €120,000.

Original story: Negocios.com

Translation: Carmel Drake

Meliá’s Profits Up By 18% Despite One-Off Impacts

26 February 2016 – Expansión

Meliá ended 2015 with a net attributable profit of €36 million, which represents a 18% increase compared with the previous year. The hotel chain said, however, that the two periods are not comparable, given that last year’s figures were affected by a higher tax rate, following the results of tax inspections launched in 2014 regarding corporation tax settlements made between 2009 and 2012.

In this regard, and in order to reflect the possible impact of these actions, Meliá made a provision amounting to €33 million. The hotel chain also clarified that having analysed the possible consequences in the years open to inspection, it does not expect any significant additional impact on the consolidated accounts in the future. “The company is cooperating with the authorities and hopes to reach a satisfactory agreement”, added the company in a document that it submitted to Spain’s National Securities Market Commission (CNMV).

Puerto Rico

Excluding extraordinary effects, such as a €29 million impairment on the Group’s hotel in Puerto Rico, and the provisions required for the aforementioned tax adjustment, Meliá’s net profit before tax amounted to €67 million, up by 200%.

In 2015, the company generated revenues of €1,738 million, which represents a 16% increase (compared with 2014).

The chain highlighted the strong performance of all its divisions in the hotel business, which allowed it to increase its revenues per available room (RevPAR) by 15.1%, thanks to the improvement in the general environment and economies in its key markets, as well as its strategy for branding and repositioning its products.

According to the financial plan, Meliá’s net debt amounted to €768.8 million at the end of the year, which represented a reduction of €216 million with respect to 2014.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Hispania On Verge Of Closing Purchases Worth €200M+

27 April 2015 – Cinco Días

The company managed by Azora informs the CNMV about its “advanced agreements”.

The billionaire George Soros owns a 17% stake in the Socimi.

Socimis have become very important players in the real estate sector in recent months through numerous purchases. And there are many more in the pipeline. On Thursday, Hispania Activos Inmobiliarios announced that it was on the verge of closing purchases worth more than €200 million.

These listed real estate investment companies are listed vehicles, created to undertake the acquisition and development of urban real estate assets for lease. They have tax advantages, for example they pay corporation tax at a rate of 19%, and they are required to distribute dividends.

Hispania has sent the National Stock Exchange Commission information about its updated portfolio, which explains that it has made “advanced agreements” with a value of more than €200 million, and is on the verge of signing the contracts.

Moreover, the Socimi reports that it involved in various deals involving assets worth more than €2,200 million, although it does not specify the negotiation phase. Hispania, which is managed by the company Azora, also updates the value of its current portfolio, to €993 million, held in various properties. In February, it agreed an alliance with Barceló with the aim of launching Bay, the first Socimi dedicated to investing in the hotel sector in Spain. Initially, the vehicle acquired 11 hotels containing 3,946 rooms. Thanks to that transaction, 57% of Hispania’s portfolio is hotel-based; 27% is invested in offices and 16% is residential.

George Soros owns a 17% stake

The fund Soros Management, managed by the billionaire investor George Soros, controls 16.7% of the listed company, according to the information provided to the CNMV. Furthermore, the manager Paulson & Co, owned by the investor John Paulson, holds an equal stake and so is another important shareholder.

Hispania also has several other hotels in its portfolio, including the Vincci Málaga, the Hesperia Ramblas (Barclona) and the Guadalmina (Marbella).

Original story: Cinco Días (by Alfonso Simón)

Translation: Carmel Drake